We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of March 31st, near the height of the coronavirus market crash. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded S&P Global Inc. (NYSE:SPGI) and determine whether the smart money was really smart about this stock.
Is S&P Global Inc. (NYSE:SPGI) a bargain? Investors who are in the know were in a pessimistic mood in Q1. The number of bullish hedge fund positions were cut by 3. Our calculations also showed that SPGI isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_338182" align="aligncenter" width="399"] Harold Levy of Iridian Asset Management[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we're going to view the new hedge fund action encompassing S&P Global Inc. (NYSE:SPGI).
How are hedge funds trading S&P Global Inc. (NYSE:SPGI)?
At Q1's end, a total of 73 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SPGI over the last 18 quarters. With hedge funds' sentiment swirling, there exists a select group of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
More specifically, Cantillon Capital Management was the largest shareholder of S&P Global Inc. (NYSE:SPGI), with a stake worth $640.2 million reported as of the end of September. Trailing Cantillon Capital Management was Third Point, which amassed a stake valued at $189.9 million. Two Sigma Advisors, Iridian Asset Management, and Egerton Capital Limited were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Rings Capital Management allocated the biggest weight to S&P Global Inc. (NYSE:SPGI), around 45.76% of its 13F portfolio. Valley Forge Capital is also relatively very bullish on the stock, designating 22.73 percent of its 13F equity portfolio to SPGI.
Judging by the fact that S&P Global Inc. (NYSE:SPGI) has experienced falling interest from the smart money, it's easy to see that there exists a select few fund managers that slashed their entire stakes in the first quarter. It's worth mentioning that William B. Gray's Orbis Investment Management sold off the biggest investment of the 750 funds tracked by Insider Monkey, totaling close to $340.6 million in stock, and Farallon Capital was right behind this move, as the fund sold off about $174.9 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 3 funds in the first quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as S&P Global Inc. (NYSE:SPGI) but similarly valued. These stocks are Prologis Inc (NYSE:PLD), Duke Energy Corporation (NYSE:DUK), JD.Com Inc (NASDAQ:JD), and Automatic Data Processing, Inc. (NASDAQ:ADP). This group of stocks' market caps are closest to SPGI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PLD,40,450612,5 DUK,35,1573551,-2 JD,90,7919916,27 ADP,46,1444924,-5 Average,52.75,2847251,6.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 52.75 hedge funds with bullish positions and the average amount invested in these stocks was $2847 million. That figure was $2586 million in SPGI's case. JD.Com Inc (NASDAQ:JD) is the most popular stock in this table. On the other hand Duke Energy Corporation (NYSE:DUK) is the least popular one with only 35 bullish hedge fund positions. S&P Global Inc. (NYSE:SPGI) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th but still beat the market by 16.8 percentage points. Hedge funds were also right about betting on SPGI as the stock returned 34.1% in Q2 (through June 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.